Introduction to small business financial management

There is a famous saying: “Give a man a fish, and he’ll eat for a day. Teach a man to fish, and you’ll feed him for a lifetime.” But what if that man doesn’t know what to do with the fish once he catches it?

When you understand how small-business finances work, you’ll know what to do with “the fish”—in other words, all the money you’re making and spending. It means more than merely starting a low investment business. It means that knowing how to handle your finances properly gives your business a fighting chance to survive and grow.

In this guide, we’ll look at essential small-business finance skills for successful entrepreneurs, including building a budget, tracking spending, and creating financial statements that are easy to understand.

It is essential to separate your personal and business finances

Choosing a bank

How to create a budget

Understanding accounting, bookkeeping, and recordkeeping

How to get started with bookkeeping

Do-it-Yourself (DIY) bookkeeping

Outsourcing your bookkeeping

Keeping your business records in order

Creating and reading financial statements

Separating your finances and limiting your liability

Separate personal from business finances

The first and most comfortable, thing to do for your business’s financial well-being is to separate your finances. Keeping your finances separate from your business finances offers many advantages, from simplifying your accounting to protecting your personal property and other assets.

Separating your finances has other advantages too. Calculating tax deductions, and overall tax preparation is much simpler when your company has its bank account. It’s also easier to figure out if that mid-week lunch was with a client or a friend when your personal and business receipts are not mixed. Even if you can easily distinguish one set of expenses from another, sorting a pile of paper come tax season wastes valuable time, and paying a qualified accountant  to do it for you can be expensive.

As your small business starts to grow, you might want to consider incorporating. When a business incorporates, it becomes a legal entity. That means if your business ever faces financial or legal trouble, your personal assets, such as your home or other assets are, in most cases, protected.

It’s important to know when to incorporate. If you make your company a legal entity while it’s still in its early stages, you’ll no longer be able to claim any losses it incurs on your personal taxes. At the same time, the more mature a company becomes and the more assets it has, the more paperwork that’s required to incorporate it. In either case, expect the cost of incorporating to be somewhere between $75 and $300.

Get the capital you need without the complications

With Barclays small business loan, you get the money you need to grow your business with just a few clicks. There is no lengthy application process and no paper forms to fill out.

Choosing the right bank

Not all banks offer the same services. Some have mobile apps; for example, some don’t. Some will tailor their services around your small business, while others will have a more standardized approach.

Corporate accounts are a little different from personal accounts, so here are some things you should consider when choosing a bank for your business:

Does it offer online banking?

What are its fees for business transactions?

What kinds of interest rates does it have for business loans?

Can it offer you a business credit card?

Can you add other people and permissions to your account as your business grows?

Doing all your banking at one institution keeps things simple, but keep in mind that it’s not necessary. If your preferred bank doesn’t have competitive rates on loans, for example, it’s OK to look for a loan from another bank.

Types of accounts

When you open a bank account for your business, consider opening both a chequing and a savings account. The first will give you a place to manage your day-to-day revenue and expenses, while the second can be used for setting aside money for things like taxes or future investments in your business.

Transaction fees

Business bank accounts, like personal accounts, come in different tiers that allow a certain number of transactions for a monthly fee. Having an idea of how your business will receive payments and how many monthly purchases you’ll make through your account is helpful information to know when deciding what type of account to set up.


For example, if you’re dealing with several different vendors regularly, you’ll want to make sure you have a low (or no) transaction fee on purchases. You might also want to see if your bank can offer you an account with no daily limit on debit purchases.

Loans and lines of credit

Even if you don’t need a loan or additional financing for your business right now, you might want in the future. So ask a few questions upfront about the bank’s lending requirements. Also ask about its interest rates on loans, the terms of its business loans and lines of credit, and what your small business would need to qualify for a loan.

Business credit cards

A credit card is a great way to build your business’s credit rating, giving you a better chance of securing loans and low-interest rates in the future. Having a business credit card also can provide you with access to rewards, fraud protection, and extended warranties on purchases.

How to create a budget

Creating a small business budget

As the saying goes, if you fail to plan, you plan to fail. You’ll never be able to see every bump in the financial road ahead, but you can avoid surprises and keep your business healthy by building a substantial budget and keeping track of your money.

Creating a sample budget will give you a general idea of what to expect in your first months and years of operation. Over time, your budgets will become easier to create, and you’ll get better at forecasting expenses and revenues throughout the year. For now, let’s look at the types of things to include in your initial budget.


A great way to start your budget is by writing out a list of every possible item you think your business will need—from the technology used to create your inventory to the everyday items in your office. A quick Google search for examples of budgets in your industry can help you figure out anything you might have missed.


One-time expenses

One-time expenses usually are big-ticket items you buy once (or sometimes every few years). It can include laptops, machinery, and office furniture. It can also include services like logo design or website development.

Fixed expenses

Fixed expenses are costs you reliably can expect to pay every month, and that doesn’t vary too much in price. It can include rent, insurance, internet service, website hosting, phone bills, and software subscriptions.

Variable expenses

Variable expenses fall somewhere between fixed costs and one-time expenses—they occur more than once but vary in amount and are paid at irregular intervals. It might include materials to make your products, marketing costs, business travel, an accountant to file your taxes, or credit card processing fees.

Product pricing strategy

Coming up with the right price for your products is an integral part of your budget. Here are some of the factors to consider when setting your price.

Cost of goods

The hard costs of the items you’re selling are usually straightforward. For example, if you’re running a hand-printed T-shirt shop, your material costs might be $6 per T-shirt and $2.50 for ink. But there’s more to setting a price than adding up hard costs.


Do you pay people to make your product or deliver your service? That cost needs to go into your cost of goods sold. Even if you haven’t hired any staff yet, be sure to include the value of your labour to help you evaluate the efficiency of your business. (If your own hourly “wage” ends up being unsustainably low, your business will need fine-tuning.) It can also give you a good sense of when it’s time to start outsourcing tasks to someone else.


If your business involves shipping product to customers, packaging and unboxing will play a significant role in how a customer experiences your brand. Your package is an extension of your product, so you’ll need to factor its cost into the cost of goods sold.


Shipping is another critical piece of getting your product to customers, and failing to estimate its cost correctly can throw off your budget. Things like size, weight, location, and speed all affect your shipping costs. Visit your local post office for help estimating your shipping.

Again, don’t forget to factor your own time into your shipping costs. You technically might be able to offer shipping within five days, but packaging up the product and running to the post office on a daily basis isn’t an efficient use of time and will make shipping more costly by taking you away from other tasks.


Online shoppers expect to see a shipping charge added at the end of their purchasing process, but keep this cost reasonable. Customers faced with an exorbitant shipping cost may very well abandon their cart and not come back.

Processing fees

If you accept credit cards, you likely pay a fixed processing fee per transaction as well as an additional fee of around 3% of the order price. These charges vary based on the processing service you use, so shop around for one that makes sense based on your order volume. If your store is going to accept international orders, keep in mind that payment coming from outside your home country might incur higher fees on your end.

Accept credit cards directly with Amazon

Amazon Payments is the simplest way to accept payments online. It eliminates the hassle of setting up a third-party payment provider or merchant account and having to enter the credentials into Amazon.



Sometimes items get damaged, whether on their way to you or on their way from you to a customer. Hopefully, the expense of replacing these goods will be a minimal cost for you, but it’s vital to factor an expected amount of damaged inventory into your pricing. A Google search will give you a rough idea of what’s typical for your type of business. Multiply the average percentage of loss in your industry by the cost of your product to come up with a loss estimate, then average that estimate into your pricing.


You may or may not choose to accept returns. If you are selling artisan crafts, for example, returns might not be for you. If you do decide to accept returns, you can do one of three things:

Charge a separate “restocking fee” to recoup some of the loss

Raise your prices slightly to account for losses from returns

Leave your prices the same, and trust that a generous return policy will mean increased sales,  you’ll also incur the cost of credit card chargebacks for fraudulent or disputed transactions.

Brand and target market

How you present, your brand will contribute directly to your pricing strategy. Are you a luxury business selling products at a premium? Are you a discount shop going after the low end of the market? The way you position your business is a less tangible factor in setting your price, but it’s a factor.

Sometimes, raising prices can, counterintuitively, increase sales by conveying quality. Other times, the lowest price will always win. Know your market and price accordingly.


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